investment in next generation networks a competitive approach to stimulating europe’s broadband...
TRANSCRIPT
Investment in next generation networks
A competitive approach to stimulating Europe’s broadband future - CEPS 22 February 2007
About ECTA
European Competitive Telecommunication Association represents some 150 operators across Europe
Aims to drive forward liberalisation and competition across the telecoms sector
Our operator members are diverse – pan-European & national, consumer & business - most have made substantial investments in infrastructure
Contents
A history of investment
Narrowband to broadband
Broadband to broaderband
What if… we had regulatory holidays?
An alternative model
What can we learn from history?
A history of investment…
Investment increased after OECD liberalisation Investment growth in Europe strong – 9% 2005-06 Higher investment in better regulated countries
(OECD, ECTA, LE)
Source: Infonetics Research, London economics
A history of investment…
Competition tends to drive investment overall – by incumbents and competitors
Incumbents invest most in absolute terms and have maintained or increased investment recently
Competitors have spent €blns climbing the ladder of investment (new investment + marketing) and have typically spent a greater % revenues (LE 3x more than incumbents)
Competitive operators have been primary innovation drivers where economics permits – the commercial Internet, triple play, NGN backbones
Markets require certainty and a fair return on capital. Incumbent performance has been steady after the economic recovery. Competitors returns limited
From narrowband to broadband
Broadband emerged late ’90s. Upgrades to exchanges, core networks
LLU countries (allowing competitive upgrades) took early lead Elsewhere, delays in mandating access – suggested ‘new’,
‘emerging’. Growth lagged. Incumbent market share high Action was needed to spur growth – incumbents maintain >80%
broadband access lines in Europe. Pressure from USTR
0
5
10
15
20
25
2001 2002-Q2 2002 2003-Q2 2003 2004-Q2 2004 2005-Q2 2005 2006-Q2
Canada
United Kingdom
United States
Japan
France
OECD
Germany
Italy
Broadband penetration, historic, G7 countries
Source :
Case study: France
Retail DSL market
0
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000
avr-0
3
juin-
03
oct-0
3
avr-0
4
juin-
04
oct-0
4
avr-0
5
juin-
05
oct-0
5
avr-0
6
LLU
Bitstream
France Telecom
2003 2004 2005
1st triple play offers: Free (LLU) & France Telecom
Triple play offer of Neuf Cegetel (LLU)
Triple play offer of Telecom Italia France (LLU)
2006
Retail DSL market
0
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000
avr-0
3
juin-
03
oct-0
3
avr-0
4
juin-
04
oct-0
4
avr-0
5
juin-
05
oct-0
5
avr-0
6
LLU
Bitstream
France Telecom
2003 2004 2005
1st triple play offers: Free (LLU) & France Telecom
Triple play offer of Neuf Cegetel (LLU)
Triple play offer of Telecom Italia France (LLU)
2006
French market stagnated until action taken by regulator LLU spurred growth & innovation, bitstream rural choice Fixed investment increased 17% in 2005, 40% from competitors
Other technologies not undermined
Cable penetration increased alongside LLU – mutual competitive stimulus (OPTA: Is 2 enough?). History seems more influential factor than regulation
Despite much promise, wireless has tended towards being complementary not substitute technology (3% lines Q3 2006)
Evolution of Cable Penetration rate in Europe from Q103 to Q306
0%
2%
4%
6%
8%
10%
12%
Q10
3
Q20
3
Q30
3
Q40
3
Q10
4
Q20
4
Q30
4
Q40
4
Q10
5
Q20
5
Q30
5
Q40
5
Q10
6
Q30
6
ECTA Broadband Scorecards
% o
f C
able
pen
etra
tio
n r
ate
per
100
inh
.
AustriaBelgiumDenmarkFranceGermanyItalyNetherlandsSpainSwedenUK
From broadband to broaderband
Incumbents NGN and NGA investment often stimulated by competitive pressure:
• Netherlands: Competitive pressure from cable and unbundling. KPN announced all-IP upgrade (access and core) – additional capex cost now < €0.9bln
• Germany: Unbundling pressure in cities. DT announced €3bln vDSL urban investment complemented by ADSL2+
• UK: Relatively well regulated and competitive market. €10b core network upgrade announced by BT
• France: Free investing €1bln in fibre through sewer system on open access basis (building on broadband competition). FT response – 200,000 customers targeted by end 2008
• US: Telcos investing to provide triple play networks to compete with Cable Cos having >50% market share
• Japan: Open access regime. Fibre penetration highest in world. Substantial and continued investment
Case study: Japan
NTT retains nearly 80% underlying fibre access lines
Copper and fibre substitutes Unbundled fibre since 2001
Broadband subscribersBroadband subscribers
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
FTTH
DSL
CATV
FTTH ： 26% （ 6.31million ）
FTTH ： 26% （ 6.31million ）
DSL ：60 ％（ 14.49mil
lion ）
DSL ：60 ％（ 14.49mil
lion ）
CATV ：14 ％（ 3.41mill
on ）
CATV ：14 ％（ 3.41mill
on ）
Total ：24.22million
Total ：24.22million
【 NTT’s investment in fiber local loops & total investment in equipment 】
810.0
885.1
775.4
696.6
766.2
1,097.7
796.9
349.0
283.0333.0
237.0164.0
149.0
350.0
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
FY00 FY01 FY02 FY03 FY04 FY05 FY06
\ bn（ ）
Total Investment
Investment forfiber local loops
planned（ ）
about
A parallel universe: NZ
Market liberalised late 80s – ex post approach Limited ex ante Framework introduced 2001 Local loop unbundling rejected by Commerce
Commission 2003. Upheld by Govt 2004 Economic Ministry report 2004 - cost of
communications basket most expensive in OECD May 2006 Government required LLU Functional separation approved Dec 2006 In Europe: Ineffective application of LLU in many
countries with similar effects - low broadband penetration, few access upgrades
What if… we have regulatory holidays?
Competitors have invested on the basis that economic bottlenecks will be addressed
Economic bottlenecks occur where replication not efficient/feasible (can be medium or long term)
If rules changed for access upgrades:• Substantial competitive investments made in recent years
risk being stranded, and investment confidence destroyed• The monopoly slowly eroded since 1998 could be
reintroduced with longer term damage to investment trends The choice and variety available for consumers and
businesses will reduce, take-up will stall Policy-makers will have delivered ‘deregulation’, but
will consumers and businesses thank them?
An alternative model
Provide fair and level playing field for all investors with clear rules up front
• For incumbents: Regulation only to address SMP and prevent leverage. Return should reflect risk
• For entrants: Access to address market failure (on technologically neutral basis) and true non-discrimination
Examine possibility of functional separation – investment incentives secured through return and ‘customer demand’ (from all operators)
Europe’s regulatory Framework is based on addressing competitive failure – built in sunset clause
What can we learn for the future?
Monopolies do not drive investment – competitive stimulus is needed
Efficient investment is key, not investment for its own sake Competition requires a fair return for all: incumbents, and –
critically – competitors Action is needed to enable competition. Inaction tends to result
in stagnation and foreclosure The broadband investment ladder does not prevent further
investment eg cable, wireless where economic Given similar history, fibre economics unlikely to be inherently
different from copper. 80% incumbent share of lines for copper-based broadband EU, 80% for fibre-based broadband Japan
Need to enable competition from outset – real non-discrimination, functional separation, fair return reflecting risk, customer-driven demand to maintain incentives to invest
Learn from the past!
